Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 15
Chapter 15
Investments
QUESTIONS
1. To be classified as current assets, investments must be (i) capable of being
2. Short-term investments in trading securities are reported on the balance sheet at the
fair (market) value of the portfolio of trading securities.
3. The $2,000 difference between the proceeds ($12,000) and the cost ($10,000) is
4. The three classes of noninfluential investments in securities are:
a) Debt and equity trading securities.
b) Debt securities held-to-maturity.
5. To be classified as current assets, investments must be capable of being converted
into cash quickly and management must intend to sell the investments as a source
6. Unrealized holding gains and losses are not reported on the standard income
statement for available-for-sale securities. Unrealized gains and losses for these
7. Unrealized loss⎯Equity ……………………………………………… ##
9. The portfolio of long-term investments in debt securities is reported at cost adjusted
10. The equity method is used when the investor has a “significant influence” over the
11. A company prepares consolidated statements if the company has control over a
subsidiary as a result of owning more than 50% of the subsidiary‘s voting stock.
12. Apple reports $(411) million for the change in foreign currency translation, net of tax
14. Samsung’s financial statements, including its income statement, are all labeled as
being consolidated statements. (Also, it titles those statements with a broad
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 15
877
QUICK STUDIES
Quick Study 15-1 (10 minutes)
Quick Study 15-2 (10 minutes)
Quick Study 15-3 (10 minutes)
Instructor note: This actively managed (for profit) short-term investment in equity
securities would be classified as Trading Securities.
Quick Study 15-4 (10 minutes)
May 7
Short-Term Investments—Trading (Kraft) …………
10,300
11,050
878
Quick Study 15-5 (20 minutes)
2016
Dec. 31
Unrealized Loss—Income ………………………………………
2
2017
Dec. 31
Fair Value Adjustment—Trading (ST) ……………………..
6
2018
Dec. 31
Fair Value Adjustment—Trading (ST) ……………………..
5
2019
Dec. 31
Unrealized Loss—Income ………………………………………
10
Instructor note: One can use T-accounts to determine the needed adjustment to fair value:
12/31/2017—F.V. Adj—Trading
12/31/2018—F.V. Adj—Trading
12/31/2019—F.V. Adj—Trading
Adj.
End.
Quick Study 15-6 (10 minutes)
July 1
Cash ……………………………………………………………………..
1,200
Dec. 31
1,200
Quick Study 15-7 (15 minutes)
1. 2017
2. 2017
Dec. 31 Unrealized Loss—Equity …………………………………… 3,000
3. Both accounts in part (1) are reported on the balance sheet.
i. The Unrealized Loss is reported as a reduction in the equity section
4. 2018
Apr. 6 Cash ………………………………………………………………… 26,000
Quick Study 15-8 (10 minutes)
5,150
Cash ………………………………………………………….
Short-Term Investments—AFS (Higo) …………………..
June 2
Cash* ……………………………………………………………..
2,710
Gain on Sale of Short-Term Investments …….
135
Dec. 31
Unrealized Loss – Equity* …………………………………..
275
Fair Value Adjustment—Available-for-Sale (ST) .
275
Quick Study 15-9 (10 minutes)
1.
2. Each of the accounts from the entry are reported on the balance sheet.
• The Unrealized Loss of $12,000 is a reduction in equity.
881
Quick Study 15-10 (10 minutes)
1. Fair Value Method: The fair value method is used to account for this
investment in long-term equity securities (AFS portfolio).
2.
(a) 2017
May 20
Long-Term Investments—AFS (ORD) ……………………..
1,000,000
Quick Study 15-11 (10 minutes)
1.
Nov. 1
Cash …………………………………………………………………….
40,000
2.
Dec. 31
Long-Term Investments—ORD …………………………..
280,000
Quick Study 15-12 (10 minutes)
1. Equity securities giving an investor significant influence are accounted for
1,000,000
Aug. 5
Cash ……………………………………………………………………..
625,000
500,000
Quick Study 15-13 (10 minutes)
2. A long-term investment classified as equity securities with controlling
Quick Study 15-14 (10 minutes)
Quick Study 15-15 (10 minutes)
1. Return on Total Assets = Profit margin x Total asset turnover
2. Component analysis is useful as it allows the determination of whether
return on assets is achieved primarily due to profitability or efficiency of
Quick Study 15-16 (10 minutes)
Both the € 7 million unrealized gains and the € 26 million unrealized losses
883
EXERCISES
Exercise 15-1 (10 minutes)
3. Short-term investments are securities that (1) management intends to
4. Long-term investments in securities are defined as those securities that
Exercise 15-2 (15 minutes)
a.
Mar. 22
Short-Term Investments—Trading (RIP) ………….
10,080
10,080
b.
Sept. 1
Cash ………………………………………………………………
1,000
1,000
c.
Oct. 8
Cash* …………………………………………………………….
7,450
5,040
2,410
884
Exercise 15-3 (20 minutes)
1.
2017
2. The accounts in part (1) are reported on different financial statements.
i. The $6,000 debit balance in the Fair Value Adjustment—Trading
3.
2018
Exercise 15-4 (10 minutes)
a.
Jun. 15
Short-Term Investments—HTM (Remedy) ………….
1,000,000
Sep. 16
1,025,000
Exercise 15-5 (10 minutes)
a.
Aug. 1
Short-Term Investments—AFS (Houtte) ………….
450,000
450,000
886
Exercise 15-6 (30 minutes)
2017
(a) Feb. 15
Short-Term Investments—HTM (A.G.) …………………………
160,000
(d) July 30
Short-Term Investments—Trading (MP3) ……………………..
100,000
Cash ……………………………………………………….
100,000
(e) Sept. 1
Dividend Revenue ……………………………………………
(f) Oct. 8
Long-Term Investments—AFS (Fran)** ………………….
Gain on Sale of L-T Investments ……………………….
(g) Oct. 30
Interest Revenue ………………………………………………
Cash ……………………………………………………….
160,000
(b) Mar. 22
Cash ……………………………………………………….
(c) May 15
164,000
Short-Term Investments—HTM (A.G.) ……………………
160,000
Interest Revenue ………………………………………………
Exercise 15-7 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Verrizano Corporation bonds payable ………….. $ 89,600 $ 91,600
Exercise 15-8 (15 minutes)
Computation of Fair Value Adjustment
Cost
Fair
Value
Unrealized
Gain (Loss)
888
Exercise 15-9 (15 minutes)
Dec. 31
Fair Value Adjustment—AFS (LT) …………………………..
32,078
889
Exercise 15-10 (30 minutes)
2015
Dec. 31
Unrealized Loss—Equity ……………………………………….
11,140
Fair Value Adjustment—AFS (LT) ……………………..
11,140
Dec. 31
38,440
Unrealized Loss—Equity …………………………..
11,140
Unrealized Gain—Equity …………………………………..
27,300
Dec. 31
73,000
Unrealized Gain—Equity …………………………………..
73,000
Unrealized Loss—Equity ……………………………………….
96,700
Unrealized Gain—Equity ………………………………………..
100,300
Fair Value Adjustment—AFS (LT)* ……………………
Exercise 15-11 (15 minutes)
1. Classification of Investments in Securities
a. The Brava Company bonds are a long-term investment in held-to–
maturity debt securities.
2. Fair Value Adjustment entry at December 31, 2017
Dec. 31
Fair Value Adjustment—AFS (LT) …………………………..
10,825
Exercise 15-12 (30 minutes)
2017
Jan. 2
Long-Term Investments—Grecco* …………………………..
411,000
Long-Term Investments—Grecco…………………………..
162,300
June 1
Long-Term Investments—Grecco…………………………..
234,250
320,000
Exercise 15-13 (10 minutes)
1. Consolidated (d) financial statements show the financial position,
Exercise 15-14 (15 minutes)
2017 return on total assets 2018 return on total assets
Exercise 15-15 (15 minutes)
1. None of the € 18 million net unrealized losses are reported in Carrefour’s
income statement.
2. The entirety of the € 18 million net unrealized losses on available-for-
sale securities are reported in Carrefour’s balance sheet as part of its
893
PROBLEM SET A
Problem 15-1A (60 minutes)
Part 1
2017
Short-Term Investments—Trading (Ford) ……………..
Feb. 9
Short-Term Investments—Trading (Lucent) ……..
97,928
Oct. 12
Short-Term Investments—Trading (Z-Seven) …….
5,825
Cash …………………………………………………………
Dec. 31
Fair Value Adjustment—Trading (ST)………………
5,322
We can also use a T-account to determine the needed adjustment to fair value:
20,925
Cash …………………………………………………………
894
Problem 15-1A (Continued)
2018
July 5
Cash …………………………………………………………….
7,585
July 22
Short-Term Investments—Trading (Hunt) ………..
48,444
Aug. 19
Short-Term Investments—Trading (D.Karan)……
33,140
Dec. 31
Unrealized Loss—Income ……………………………..
24,834
Fair Value Adjustment—Trading (ST) …….
24,834
We can also use a T-account to determine the needed adjustment to fair value:
Apr. 15
Cash …………………………………………………………….
22,915